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CAIRO-Ask for a "Peps" in Egypt today and expect to be handed a Coke-a shocking phenomenon in a market where "Peps" has become a generic term for soft drink in Egypt and the brand of choice for 48 years.

But all that has changed with the complete privatization of the country's two major soft drink brands in April, resulting in a shift in alliances.

Now Coke and Pepsi are battling it out for leadership in Egypt's $400 million soft drink market. Prior to privatization, Pepsi brands held 47% of the market to Coke's 38%. Now, Coke claims to control 62% of the market. Pepsi cites a drop in sales of between 10% and 15% and says its market share has dropped, but it's not clear how much.

This is the first time Coke has clearly surpassed Pepsi in the Arab world, and the marketing battle is expected to be fought fiercely throughout the region.

"That [recent gain] has nothing to do with consumer preference," said Amin Khalifa, general manager of Alkan Bugshan (Pepsi Egypt) of Coke's lead, referring to Pepsi's decline here. "It has a lot to do with [our] losing a big amount of our production."

In fact, two local Pepsi bottlers and partners with the government, Shaher Abdel Hak and his brother Abdel Galil Abdel Hak, managed to turn the Egyptian soft drink market upside down. The shake-up occurred after they lost a bid for the government's portion of the Pepsi business to Alkan Bugshan (Pepsi Egypt) and entered a joint venture with Atlantic Industries (Coca-Cola Egypt).

Coke gained an upper hand in Egypt's cola war because five Pepsi bottling plants were under the control of the Haks, who previously were associated with Pepsi. Pepsi now has nine bottling plants; Coke has 22.

Coca-Cola says it's won the war-but Pepsi officials barely concede the production battle to Coke, much less market leadership.

Coke, which left all Arabic countries in the Middle East except Morocco and Tunisia in 1967, returned to Egypt in 1978 and the Arabian Gulf countries five years ago.

"They are coming in with muscle into the Gulf and they spend like there is no tomorrow," said Amira Sayedahmed, marketing manager for North Africa Pepsi.

Ms. Sayedahmed said Pepsi is holding its ground in the Gulf by increasing its ad budget, though she declined to provide figures. In Egypt, Pepsi dismisses Coke's lead as temporary, tactical and ill-gotten.

The companies are also entangled in a series of complicated lawsuits over bottling rights, but the real battle is in the marketplace.

Pepsi Egypt claims to have rebuilt 30% of production capacity, but during the peak summer season Pepsi brands-Pepsi, Pepsi Light, Mirinda and Shani orange sodas, 7Up, Diet 7Up and Teem lemon-lime-have been scarce, while Coke, Diet Coke, Sprite, Diet Sprite, and Fanta are plentiful.

"Now the market leader is categorically, unequivocally, Coca-Cola," said a Coke spokesman, claiming the company will stay in the lead "forever and ever."

"Certainly not," said Pepsi's Ms. Sayedahmed. "Coke's market share is capacity-driven; it is not marketing-driven. The consumer choice is still Pepsi."

"There is no reason why we can't maintain our lead," said Jim G. Harting, region manager for Coca-Cola Egypt.

He said Coke's primary marketing efforts will emphasize image, quality and availability of product. Past poor service and poor product quality took the fizz out of Coke under government ownership.

To upgrade its image, Coke is replacing scuffed returnable glass bottles with new ones bearing the familiar red-and-white logo. Coke also is introducing a nonreturnable single-serving glass bottle with a resealable top.

Both companies expect to increase their ad budgets, but decline to reveal past and future spending. Both hope to roll out new advertising by January.

Pepsi plans to use some select outdoor to support a television effort, while Coke continues its strategy of using heavy concentrations of boards all over the region.

Coke's outdoor boards feature the "Always" campaign created by McCann-Erickson and introduced last year.

So far, all of the creative for Coca-Cola Egypt's advertising is prepared outside the region and dubbed over for local presentation by Al Ahram.

Meanwhile, Pepsi is continuing with its two-year-old "Pepsi. Got it all," created by BBDO Dubai.

One of the most recent spots, "The last Pepsi," featured two boys sitting on a park bench and fantasizing about what they would do if they had the last Pepsi on Earth.

Other localized efforts for Pepsi include an Egyptian version of the "Fridge filler" spot which ran during the Super Bowl in the U.S. Because Pepsi's image in Egypt is associated with soccer, IMPACT/BBDO, reshot the idea during the World Cup Soccer games this summer.

The local version features young men watching the World Cup in a posh environment with a host who had provided everything. When the host discovers he has run out of Pepsi, his friends abandon him.

"The status quo is gone forever," said Mr. Harting. "It is going to be a typical Coke/Pepsi battle; the only difference is we are now prepared to dominate the market."

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